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Suddenly, Free Trade With Mexico Is In Trouble

December 15, 1991

INTERNATIONAL OUTLOOK

SUDDENLY, FREE TRADE WITH MEXICO IS IN TROUBLE

When President Bush hosts his Mexican counterpart Carlos Salinas de Gortari at Camp David on Dec. 14, the mood won't be as cheery as in the past. Suddenly, the prospects of the two leaders' creating a U. S.-Mexico-Canada free-trade zone rivaling the European Community have turned sour. It now seems unlikely that they will meet their target of getting a pact through the U. S. Congress in 1992.

The deal looked like a shoo-in when Congress gave the Bush Administration fast-track negotiating authority last May. But the political climate has shifted radically since then. The U. S. recession has raised fears that any trade pact will accelerate the drain of manufacturing jobs to Mexico. With an election year approaching, bashing the pact has become good politics.

Pennsylvania's Harris Wofford scored points doing it on the way to his surprise U. S. Senate victory in November. Now, Senator Tom Harkin (D-Iowa) has made opposition to free trade a centerpiece of his Presidential campaign. On the right, Republican commentator Patrick Buchanan may challenge Bush in the New Hampshire primary with an "America First" campaign critical of the deal.

'NOTHING GOOD.' While Carla A. Hills and other trade officials are keeping up a brave front, many political strategists now consider it unlikely that Bush could push an agreement through Congress before the elections. "No one has given up on trying to get an agreement next year, but clearly, this is going to be more difficult than we expected," says one top trade official.

Congressional committees are expected to scrutinize any agreement line by line, pushing a vote well past November.

Such a delay would jeopardize free trade in both Canada and Mexico. Canada's own deep, drawn-out recession has already helped sink Prime Minister Brian Mulroney's approval ratings below 20%. Moreover, Canadians blame the U. S.-Canada free-trade pact of 1988, which Mulroney enthusiastically supported, for Canada's sky-high 10.3% unemployment. So Canadian opposition to a pact with Mexico is already intense. "There will be nothing good for Canada in this deal," says Maude Barlow, a leading opponent of free trade.

If the negotiations drag on too long, they may become a huge issue in the general elections that must be called by late 1993. Warns Gordon Ritchie, a former top Canadian trade negotiator: "If we don't have a deal by March, it means postponing until 1993, and then all bets are off."

LOSING CLOUT. Although the trade talks are vastly more popular in Mexico than in Canada, snags could also lead to troubles there. Free trade's chief backer, Salinas, is now halfway through the one six-year term allowed Mexican Presidents, and he'll gradually lose clout from here on. If the pact is still on the table as the struggle over presidential succession heats up, it could become a prime target for nationalist opponents. That's why Salinas is hustling to Camp David to try to rejuvenate the talks.

A setback on free trade could have disastrous consequences for Salinas' reform program. Expectations of a quick agreement have drawn $12.5 billion into the Mexican financial markets this year alone, driving the stock market up 120% and giving Mexico a record $16 billion in reserves. But analysts warn that a souring of the free-trade talks might spook investors -- sending the economy into a tailspin. "Negative headlines on free trade would send people to the door," says William G. McBride, an analyst at Lipper Analytical Services.

Bush also has a lot to lose. He's already under sharp attack for lacking a strong domestic policy. Disarray on free trade would weaken his remaining strong suit -- foreign affairs.EDITED BY STANLEY REED; Paul Magnusson in Washington, William C. Symonds in Toronto, and Stephen Baker in Mexico City